Q1 2018 Update: 67.8% FI ratio

I didn’t update much last year as things were so much in flux with how we were managing our finances. I feel like they’ve settled a bit more now, so it’ll be easier to update again. Excuse the dust as I figure out the best way to update on things going forward. Our goals at this point seem to be (1) pay off the mortgage within 10 years before we are both 40, (2) use all tax-advantaged investment space available to us, (3) budget our spending and invest everything else in a Vanguard taxable account once we have enough buffer in savings, and (4) have 25 years of expenses in investments, with at least 10 of those years in taxable accounts, by the time we are both 40.

Savings (0.79-1.1 months)

We spent much of 2017 riding the credit card float, so this feels like a good start. We have a solid cash holding in each of our separate accounts, but we want to develop a solid holding in our joint accounts too. We haven’t decided how many months we want yet, so we will plug away at it until we find the right number. This is our primary savings goal at the moment and then we will switch over to taxable investments once we reach it. As of the end of March, we were sitting at 0.79 ideal months including the mortgage payment as an expense, or 1.1 months once we allocated the March income. That obviously needs a bit of work! We did get a mid-four figure income tax refund (setting your withholding correctly with two people and multiple income streams is way harder than it was with one person with one income stream), which helped jump start that account, among other cash flow items.

Investments

I didn’t really update much last year, but we hit a really exciting milestone last year – our combined taxable accounts surpassed our 401(k) balances in June 2017! That was pretty cool to see. For people who discover FIRE in their thirties or later, they seem to often have much larger 401(k) balances than taxable, but that is not the case with us. (You can see this in the chart – it’s of our investment types over time in 2017.)

In 2017, our combined investments saw a six figure gain! That was pretty cool. In January, they increased by a multiple of our gross income for the month, which was pretty cool. (Of course, they promptly lost most of that in February, which was also the largest drop we’ve seen in one month so far.)

We both made our 2018 Backdoor Roth IRA contributions at 12:01 am on January 1st, from separate cash. Why 12:01 am even though they don’t post until overnight on the 2nd? For fun, because we were awake, and then it was checked off!

My husband has been contributing enough to his 401(k) each month to max out the $18,500 employee contribution and get his full employer match each paycheck. Unfortunately/fortunately, he received a distribution from his 401(k) in March due to being classified as a highly-compensated employee. He invested it, including the taxes they withheld from the distribution, into his taxable account, re-balancing.

Our taxable accounts saw substantial contributions this quarter, as we put some lingering cash to work once we came to an agreement about sharing the condo equity.

We plan on opening up a joint Vanguard taxable account sometime this year. We have been working through many questions:

  1. What fund do we want to use in Joint Taxable for bonds? We’ve both mostly followed the advice to keep bonds in our pre-tax 401(k)s, but since we are in our early thirties, we don’t want to weight our 401(k)s too heavily towards bonds, especially when they are already at 36% across the two accounts. That means that we will definitely be putting bonds in our taxable account and are leaning towards using an intermediate-term tax-exempt bond fund.
  2. Do we want to manage our joint investments as a third portfolio, separate from our existing personal investments?
  3. What asset allocation do we want to use? We both already are at 50/50 US/international stock indices, but one of us has more in bonds than the other, so we need to figure out how to balance that.

Mortgage

12/31/2017 balance: $115,761.14. 10 years, 9 months remaining.

January payment: $786.15 principal, $241.17 interest

February payment: $219.61 principal, $395.23 interest (that’s what re-amortizing to 25 years left at 4.125% and only paying the required payment does. We budgeted for the original payment but only paid the required one to allow for a buffer for closing costs on the anticipated refinance.)

March payment: $220.37 principal, $394.47 interest

3/31/2018 balance: $114,535.01. 12 years, 0 months remaining. (That’s what happens when the interest rate jumps. It’ll go back down to 10 years left in May since we refinanced.)

Spending Ratio – Portion of the ideal annual budget cumulatively 

January – 54.6% – 1.15/12
February – 73.1% – 2.02/12
March – 79.2% – 2.97/12

Q1 – 67.8%

I calculate the spending ratio with expenses in the numerator and the denominator as 4% of our investments plus the value of any redeemed credit card points. The second figure is the cumulative spending so far for the year divided by our ideal annual budget, expressed as a fraction of 12. Both of these figures ignore the mortgage payment.

The denominator covered all non-mortgage housing, food, transportation, personal care, and medical expenses throughout all months in Q1! That’s some pretty solid progress. Remaining categories to work through are: entertainment, shopping, travel, life, and his and hers spending.

When you take out the mortgage payment, our top three spending categories in Q1 were food, housing, and travel, in that order. (Is that a good thing or a bad thing that we spend more on food than housing ignoring the mortgage payment?)

In housing, our condo fees are up 50% from 2017 and our property taxes also went up substantially as well. That combination is now about $910/month, compared to $530/month when I bought the place six years ago. Whoever says that housing doesn’t go up when you buy a place is lying.

In travel, we had a weekend getaway and bought flights for a summer wedding. We used UR points for the flights, but we budget for the full cost of trips and then count the amount of any points redeemed to cover a part as spending and then the same amount as income. We don’t see points as free money. We are still hovering around 200,000 UR points, thanks to both of us getting the 100,000 bonus on the Chase Sapphire Reserve, our wedding venue qualifying as a restaurant, and paying cash for all of our honeymoon hotels (via Hotels.com and cashback sites!) and having many UR cards (Freedom, Freedom Unlimited, and one Reserve), despite using UR points to cover our honeymoon flights last year.

In other spending, we made some updates to our postnuptial agreement (and resolved to hopefully never do that again because two lawyers aren’t cheap), bought a lovely leather wedding album and some other prints <3, replaced some sheets after we found a hole in one of our two sets, and spent more on bicycle maintenance than car maintenance. My husband says that’s because the bicycles are the “daily driver” and the car is for long road trips.

Readers, how was your Q1?

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11 thoughts on “Q1 2018 Update: 67.8% FI ratio

  1. I miss my PG&E quarterly dividend (they have suspended dividends until they have a better idea about how much they’ll be owing in lawsuit costs to the state of California for wildfires). It was only ~$700, but it always made me smile when it showed up in checking. :(

    We should have refilled our emergency fund from our recent car purchase in the next month or two depending on how spendy we are in the meantime. After some initial spending sprees (mainly the car), we’re starting to feel DH’s salary combined with the lack of daycare and mortgage payments. It is possible that we’ll start having money to put into taxable funds starting this summer sometime (though possibly not until October, it depends on if we decide to do kitchen renovations this summer, which is more likely than not).

    • Dividends have such a psychological piece to them, don’t they? I’m excited to see what you guys do with your kitchen :) Thanks for talking about how you paid for your new car – I’m working on convincing my husband we should pay cash when we (eventually) replace this one. When did you stop paying for daycare? I vaguely remember this update now, but that is very exciting!

      (My husband must have felt like reading the comments this morning since I made him read this post before I published it – he asked what PG&E was while we were eating breakfast.)

      • Before the kitchen, we need the plumber to finally do our whole house water filter ($1700 + $800). We’ll see if that ever happens…
        We stopped paying for daycare in September. We still pay for after school care and summer care though.

  2. Looking good. It’s great that you have more in the taxable account than 401k. I don’t know if we’ll ever get to that point. I started investing in my 401k in 1996 and I don’t see how the taxable income can catch up at this point. Oh well, first world problem…
    Nice job with the FI ratio too. :)

    • Thanks! I’m surprised it happened so quickly and I wasn’t even expecting it to happen, since so many FI bloggers have larger taxable accounts and need to work around that in their planning.

      Our average FI ratio in 2017 was 39.3%, so we have been making some substantial improvements. My husband started maxing out his 401(k) in 2013, at which point he already had room to start a taxable account.

  3. I’m glad you are doing financial updates again. :)

    Wow, that’s a big increase in fixed housing expenses. We’re half the condo association (2 unit building), so fees can’t go up without our say so, but our city is starting to look at tax increases to capture some of the housing appreciation. Which makes sense and is reasonable but at the same time having taxes go up is always kind of annoying.

    • Thanks :) Oh a two unit building is interesting. Do you like being in a building that small? We are in an under 20 unit building. The fee increases were definitely worthwhile and I don’t dispute them, but it is a steep change since I bought the place six years ago! And they’re almost as big as our mortgage payment. Our property tax rate has been stable I think, but the valuation has almost doubled, which is why the taxes are up so much.

      • In general I’m used to living in smaller buildings. A lot of the housing stock out here is composed of “triple deckers” (i.e. three unit, stacked buildings). Ours is a minor variation on the theme with just two units.

        The overall setup has its pros and its cons. Since my neighbor and I split the vote 50/50 we can sometimes get into petty quarrels over what sort of work needs to be done on the building and who should do it. Otherwise I like it. We get a lot of the trappings of a SFH (yard, porches, no lateral neighbors) while paying half the cost of roof replacements, other big building things.

        • Petty quarrels with one person sound better to me than our petty quarrels with the five person board. At least you have more power and transparency. Around here, condos are really only apartments and many townhouses are legally SFHs without the trappings or benefits of HOAs, which is why I don’t really want a townhouse even if I really do.

  4. Ouch, over $900 a month in property taxes and maintenance fees? :( That’s some serious inflation and not even of the lifestyle kind! Thanks for sharing your numbers, sounds like you guys did pretty good last year!

    • Thanks! And yeah, we’ve seen some pretty large property tax increases since I bought the place. Inflation doesn’t double cause prices to double in six years!

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